Are you under the age of 62? If so, bye Felicia. Reverse mortgages are only for homeowners age 62 and older. But if you like to read about really exciting stuff, like home mortgages, then stick around.
To help us break through the noise, we spoke with Doug Carling, a mortgage banker with 15+ years of experience in mortgages, so you’ll know exactly what you need before you jump into a reverse mortgage.
Like any mortgage talk, it’s confusing as hell, so we’re going to boil down what a reverse mortgage is, what it takes to qualify (aside from being old[er]), and help you determine whether it’s a smart move for you.
To smart people that use big words, a reverse mortgage is a home equity conversion mortgage (HECM) insured by the Federal Housing Administration (FHA). For the rest of us, a reverse mortgage lets you turn your home’s equity into cash. You stop making mortgage payments, and you get some extra spending money.
“This loan allows someone to continue living in their home without making mortgage payments. The payments you would be making get added onto the balance of your home. You’d pay this off if you leave the home, or you pass away and the government gets your home,” explained Doug Carling.
The amount of money you can receive from a reverse mortgage is based on your age, the value of the home, interest rates, and the amount left on your mortgage.
Too good to be true? No. As easy as it sounds? Also, no. However, if done strategically, a reverse mortgage could be a great option for keeping your home if you have enough equity and you’re not financially able to continue making mortgage payments.
Reverse mortgages are not for everyone, but can be a great option if you fit into one of the following categories:
“Reverse mortgages are not ideal for someone who has other sources of income that can be financially secure. You are essentially losing your equity,” said Doug.
As with any mortgage, there are a variety of stipulations to a reverse mortgage. If you’re reading this and thinking, “Who doesn’t love extra cash?” and you’re on your way out the door to your lender, pump yo’ breaks.
If you’re smart with your money but just didn’t end up with a lot of it by the time you retired, then a reverse mortgage can be a way to live with a little less stress later in life. If you’re thinking that a reverse mortgage is just a way to work the system so you have more cash, it will backfire.
The people who find themselves in trouble with a reverse mortgage are the ones who are not strategic about spending. If you’re taking out a reverse mortgage for living expenses, making a financial plan that lays out how you’ll use your money can ensure that you won’t run out of equity before running out of time.
As previously mentioned, a reverse mortgage can be used to pay off a second mortgage (but don’t forget you must be living in your home in order to take out a reverse mortgage on it).
Doug reminded us that reverse mortgages are designed to benefit seniors. If done properly, a reverse mortgage can provide a stress-free way to spend your golden years or ensure that your spouse is not left with a house payment they can’t make if you pass away.
So if you’re over 62 and didn’t retire with as much money as you hoped, and want to spend your time living your best life before you bite the dust, a reverse mortgage could be the best solution for you.